Business Studies · May / June 2023 · Paper 11 · Question 2

0450

As printed in the paper

The question as text

LMA is a family-owned restaurant. The business was started 20 years ago and has remained small. LMA is a partnership. The partners are considering whether LMA should become a private limited 2 company. The Finance Manager is analysing LMA’s cash-flow forecast. An extract is shown in Table 2.1. Table 2.1 Extract from LMA’s cash-flow forecast 2023 ($000) September August July 330 300 420 Cash inflow 360 320 410 Cash outflow (30) (20) X Net cash flow 50 70 60 Opening balance Y 50 70 Closing balance

Read automatically from the paper; the printed page above is exact.

Show the answer and mark scheme

2(a)[2]
Identify two reasons why a business might have cash- flow problems. Award 1 mark per reason (max 2). Points might include:
Too much inventory
Growing too quickly/overtrading
Allow customers/ trade receivables too long to pay
Paying suppliers/ trade payables too quickly
Seasonal /low demand
Poor (financial) planning Other appropriate responses should also be credited. 2 Only award first two answers given.
2(b)[2]
Calculate X and Y. Award 1 mark for each correct calculation (max 2). X = $10 000 or 10 Y = $20 000 or 20 2 $ sign not required. Notes
2(c)[4]
Identify four examples of a cash inflow. Award 1 mark per example (max 4). Points might include:
(Cash) sales/revenue
Payments from trade receivables/money from credit sales
Grants
Bank loan
Sponsorship
Sale of non-current assets
Funds from investors/share issue/capital introduced by owner
Dividends from shares in other companies
Interest received from savings/bonds/investments Other appropriate responses should also be credited. 4 Only award the first four responses given. Can award ‘sales’ if the candidate does not identify specific examples (of cash or credit sales). Can allow ‘additional income from renting assets’. Allow Debt factoring if seen. Do not award trade receivables alone. Notes
2(d)[6]
Explain one advantage and one disadvantage to LMA of becoming a private limited company. Award 1 mark for each relevant advantage/disadvantage (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: Advantages:
Limited liability [k] so personal assets are not at risk if the business is not able to repay its debts/ only liable for the amount invested [an]
Separate legal identity [k] so the owners are not held responsible for the actions of the business [an] which is not true for a partnership [app]
Able to raise finance by selling shares [k] to fund expansion [an] if the business decides it does not want to remain small [app]
Continuity [k]
Can choose who buys shares [k] Disadvantages:
More legal formalities [k] which takes time away from other activities [an] in the restaurant [app]
Separation of ownership and control [k] so the owners may not be involved /agree with business decisions taken [an] as the directors may not listen to the family [app]
Expensive/time consuming to change to this form of business organisation [k]
Accounts must be made available [k]
Dividends may/ be paid [k] reducing retained profit [an] Other appropriate responses should also be credited. 6 To use words from the stem as application, the reference must be appropriate, (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Restaurant
Partnership
Remain small
20 years ago
Family(-owned) Other appropriate examples in context can be credited. Notes
2(e)[6]
Explain two reasons why a business might remain small. Which reason is likely to be most important? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to which reason is likely to be the most important reason why a business might remain small. Points might include:
Access to capital/lack of finance [k] which makes it difficult to fund expansion/working capital [an]
Small market [k] so there is not sufficient demand [an]
Lack of skills/knowledge to expand/larger business more difficult to manage [k] so more likely to make mistakes if expand [an]
Lack of workers [k]
Type of industry/service industries (offer a personal service)/specialised products [k] where close contact maybe needed [an]
Personal objectives/owner’s objectives or example such as better communication with customers, keeping control [k] which might help retain/increase customer loyalty [an]
Market dominated/controlled by a few large competitors [k] so will struggle to attract more customers [an] Other appropriate responses should also be credited. 6 This is a general question so there are no marks for application. Notes Justification might include: One reason is the size of the market [k] as there may be insufficient customers [an]. Another reason is lack of finance [k] making it difficult to fund expansion [an]. The size of market is a more important reason why a business might remain small as without customers there is no revenue [eval], which is likely to reduce the need for finance anyway [eval]. Notes

Practise this paper →

Make a free account to save your answers and see your weak topics and ask the AI why a wrong answer is wrong.